Report for the Hearing in Case C-263/91

I — Community legal framework

1. Article 13 of the Protocol on the Privileges and Immunities of the European Communities (hereinafter the Protocol) is worded as follows:

2. Article 14 of that Protocol provides that:

II — National legislation

1. The provisions relating to national income tax are laid down in Paragraphs 4, 5 and 6 of the Statskattelov (Tax Law, Law No 149 of 10 April 1922). The amount which constitutes the basis for the calculation of income tax is the difference between gross taxable income, as laid down in Paragraph 4, and gross deductible expenses, as fixed in Paragraph 6. Pursuant to Paragraph 6(1)(e), all interest on loans connected with immovable property is deductible from the taxable income of the taxpayer. By way of derogation from Paragraph 4, Paragraph 5 lists various types of income which are not taxable.

2. Paragraph 4 of the law lays down what must be included as taxable income. With regard to the rental value of a property which the proprietor occupies himself, irrespective of whether it is situated in Denmark or abroad, the final sentence of Paragraph 4(b) is worded as follows:

3. Paragraph 4(b) of that Law has been supplemented by the provisions of the Ligningslov (Tax Assessment Law) laying down standard rules for the calculation of the rental value of a home where the taxpayer occupying the home is himself the owner. In the relevant tax years those provisions were set out in Paragraphs 15A to 15L as published in Lovbekentgørelse (Consolidation Regulation) No 327 of 7 July 1983. For property in Denmark, the starting point for fixing the basis of assessment of the rental value for a home occupied by the owner is the value of the property at the time of the last official assessment.

4. In so far as the person concerned spends more than DKR 200000 on improving the home, the basis for assessment corresponds to the value of the house plus 80% of the costs thus incurred, in accordance with Paragraph 15B(3) of that law. Should the value of the house not have been assessed at the beginning of the tax year, Paragraph 15C provides that the basis for assessment shall be fixed at 70% of the purchase price plus the cost of improvements. For houses occupied by a single family, the rental value of a home situated in Denmark is, according to Paragraph 15G of the same law, equal to 2.5% of the part of the basis for assessment which does not exceed a basic amount, which, for the 1983 and 1984 tax years, was set at DKR 771100 and DKR 802100 respectively. For the part exceeding the basic amount, the rental value is equal to 7.5%.

III — Facts of the main proceedings

1. Since 1 April 1976 Mr Kristoffersen, the plaintiff in the main proceedings, has worked as an official in the Secretariat of the European Parliament in Luxembourg. Together with his wife, who also works and lives in Luxembourg, he had a house built there between 1982 and 1983.

2. The defendant in the main proceedings, the Danish tax authorities, considers that Mr Kristoffersen was liable, for the 1983 and 1984 tax years, for tax calculated on the rental value of the home in which he lives and which he owns.

3. For the tax years in question, the tax authorities calculated the basis for assessment of the rental value in accordance with Paragraph 15C of the Ligningsloven, in this case 70% of the purchase price (the cost of acquiring the land plus the construction costs), in the same way as for houses situated in Denmark which had not been officially valued at the beginning of the tax year.

4. The taxable rental value was fixed at DKR 42283 in 1983 and DKR 70927 in 1984. The construction and fitting-out of the house were to a large extent financed by a loan. The cost of servicing the interest was, pursuant to Paragraph 6(1)(e) of the Statskattelov, allowed as a deduction from taxable income equal to DKR 138804 in 1983 and DKR 153604 in 1984. Mr Kristoffersen's taxable income was fixed by the tax authority at minus DKR 104903 in 1983 and minus DKR 85739 in 1984. For that reason he was not called upon to pay taxes in Denmark on any part of his income.

5. Before the national court, Mr Kristoffersen argued that it was contrary to Articles 13 and 14 of the Protocol to treat as income the rental value of the home which he occupies as owner in Luxembourg. He also contended that an interpretation of the concept of income, referred to in the first paragraph of Article 14 of the Protocol, leads to the conclusion that the Danish authorities cannot subject him to a tax on income corresponding to the rental value of a home occupied by the owner, since that is not income within the meaning of income as referred to by that provision. According to Mr Kristoffersen, to charge to the income of a European official the rental value of his own home assumes the character of indirect taxation of the income constituted by the salary paid by the Communities.

6. The Skatteministerium, the defendant in the main proceedings, took the view that it is not contrary to Articles 13 and 14 of the Protocol to tax Mr Kristoffersen on the basis of the rental value of a home occupied by the owner and situated in Luxembourg. It argued that those provisions are not intended to impose restrictions on the tax rules adopted by the Member States within the framework of their income tax systems.

7. The defendant in the main proceedings also emphasized that the fact that the rental value of a house occupied by the owner is treated as income constitutes, pursuant to Danish law, a tax on income, as is shown by the fact that the rental value is taxed at a rate which varies according to the overall income of the owner. It pointed out that the delimitation of the concept of taxable income by each of the Member States depends on the provisions of domestic law, and that the use of the term income in the first paragraph of Article 14 of the Protocol does not allow the description of a particular tax as income tax in the legislation of a Member State to be disregarded when European officials are taxed pursuant to that provision.

8. The defendant in the main proceedings considered that the taxation of Mr Kristoffersen on the basis of the rental value of the home in which he lives as proprietor does not constitute indirect taxation of the salary which he receives from the European Communities. All taxpayers subject to the Danish tax system are taxed on the basis of the rental value of the home which they occupy as owner, irrespective of where it is situated.

9. The Østre Landsret, seised on appeal in the dispute, therefore submitted to the Court, by order of 7 October 1991, the following preliminary questions:

IV — Procedure before the Court

1. The order for reference of 7 October 1991 was lodged at the Court Registry on 14 October 1991.

2. Pursuant to Article 20 of the Protocol on the EEC Statute of the Court of Justice, written observations were submitted by the plaintiff in the main proceedings, represented by A. Torbøl, of the Copenhagen Bar, by the defendant in the main proceedings, represented by T. Lehmann, Head of the Legal Department of the Ministry of Foreign Affairs, acting as Agent, assisted by K. Hagel-Sørensen, of the Copenhagen Bar, by the Italian Government, represented by P. G. Ferri, Avvocato dello Stato, acting as Agent, and by the Commission of the European Communities, represented by J. F. Buhl, Legal Adviser, acting as Agent.

3. On hearing the report of the Judge-Rapporteur and the views of the Advocate General, the Court decided to open the oral procedure without any preparatory inquiry and to assign the case to the Sixth Chamber.

V — Written observations submitted to the Court

1. With regard to the first question, Mr Kristoffersen, the plaintiff in the main proceedings, claims that the taxation of the rental value of a home occupied by the owner must be considered as the taxation of a usufruct. That taxation takes the form of income tax on an estimated rental value. However, the taxable amount is calculated in such a way that that rental value does not correspond to the amount which could be realized by renting the property in question.

2. The Skatteministerium, defendant in the main proceedings, emphasizes, with regard to the first question, that it follows from Article 14 of the Protocol that Community officials who, solely by reason of the performance of their duties in the service of the Communities, establish their residence in the territory of another Member State continue to be subject to tax in the original State of domicile for the purposes of income tax, wealth tax and death duties. That provision must be read in conjunction with Article 13 of the Protocol and with the restrictions on their Lability to national taxes to be found in the second paragraph thereof.

3. The Italian Government observes that the first question formulated by the national court serves to determine whether the tax which the Danish tax authorities wish to apply to the home may be considered as income tax as referred to in the first paragraph of Article 14 of the Protocol, taking into account the fact that, according to Danish law, that tax is calculated on the rental value corresponding to the amount which would be realized if the property were rented, the rental value being included in the person's taxable income, and the tax payable thus depending on the taxable person's other income, since the Danish system of income tax is a progressive system.

4. According to the Commission, it is apparent from the scheme of the Protocol on the Privileges and Immunities that the purpose of making Community staff liable to Community tax on the basis of uniform conditions is to safeguard the independence of the Communities and the equal treatment of their officials and other servants. That principle however applies only to the salaries, wages and emoluments paid to the officials by the Communities. The provisions of the Protocol have always been interpreted as meaning that the Member States, when determining the taxable income of the officials of the Communities and when calculating any tax on that income, must avoid taking into account the salaries and emoluments paid to those officials in respect of their employment in a Community institution.

1 Language of the case: Danish.